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Legislative reform for increased boardroom transparency

The government has announced corporate governance reforms for listed companies that aim to ‘increase boardroom accountability and enhance trust in business.’

So far three reforms have been announced:

Pay Ratio

Legislation is going to be introduced to create a duty on listed companies to publish and justify the pay ratio between their CEO and their average UK based employee. The timeframe for the new laws coming into force has not been disclosed.

Public Register

A public register will be created to ‘name and shame’ listed companies where 20% of shareholders have opposed the annual pay package for executives. The register will be maintained by the Investment Association who has praised the introduction of the register as a step towards greater transparency and accountability. Companies included on the register may have to explain how shareholder concerns will be dealt with. The aim is for the register to be up and running by the end of this year.

Employee Representation

The general employee body will be given greater representation on the board of listed companies. Representation can be achieved through the appointment of a non-executive director to represent employees; the creation of an advisory council; or the nomination of a director from the workforce.

This reform will be achieved by an amendment to the UK Corporate Governance Code. Under the Code currently, listed companies are required to confirm whether they have complied with the provisions of the Code and they have to report how the principles have been applied, or alternatively provide a full explanation for non-compliance. Therefore, it is likely that the same will apply to these provisions when introduced.

The revised code is expected to be published by mid-2018 and the provisions would therefore come into force in 2019.